Bordered by Spain and the Atlantic Ocean, Portugal is quickly becoming one of Europe’s most important hubs for startups and tech. With an economy that keeps growing, Portugal is a popular destination for digital nomads and workers at major tech companies, including Microsoft, Amazon, and Google.
In recent years, Portugal has made a commitment to growing their economy after a large recession. This growth mainly focuses on foreign investors, so they make the process of setting up payroll simpler than other countries in Europe.
However, the process still requires you to have extensive knowledge of Portuguese tax and employment laws, as well as time and investment capital to set up a subsidiary or entity and establish a strong HR team within the country.
This article gives employers everything they need to know about paying their workforce, and gives employees an overview of how payroll is run in Portugal.
Portuguese employees are usually paid bi-weekly, through a check, money order, or direct deposit. The payroll must be issued on a working day and the employer must provide the employee with a paystub.
The monthly minimum wage in Portugal is 822.5 EUR. However, the monthly minimum wage is significantly lower than the average living wage, which is around 1,200 EUR.
To set up payroll in Portugal, there are quite a few steps that you as an employer must follow in order to remain compliant with tax laws. These steps include:
Establish a subsidiary or entity
Register with the specific county’s tax authority
Register with Social Security
Establish a power of attorney
Set up an in-country bank account to pay employees
This process can take up to 30 days after you establish a subsidiary, so having the time and resources to set up and pay your employees in compliance with Portuguese employment laws is crucial.
Employers and employees both contribute to the country's social security. Employees must contribute a flat 11% of their salary each month to social security to receive their employee benefits, while employers contribute 23.75% each month to social security. In Portugal, there is a progressive tax scheme where employee’s taxes are increased based on their salary.
Employers in Portugal pay several corporate taxes, which break down as follows:
Corporate tax: 21%
State surcharge tax: 3%-7%
Municipal surcharge: up to 1.5% depending on the municipality of business
Combined tax rates: 31.5% maximum
There are two separate unemployment taxes that employers pay into in Portugal:
Fundo de Compensacão do Trabalho (FCT): 0.925%
Fundo de Garantia de Compensacão do Trabalho (FCGT): .075%
Both of these amounts are calculated based on the employee's base salary.
For the value added tax, the standard rate throughout the country is 23%. However, there are two regions where the value added tax rate is lower. In the autonomous region of Azores the VAT is 18%, and in the autonomous religion of Madeira the VAT is 22%.
The withholding tax rate in Portugal for income is a flat rate of 25%. However, because of the progressive tax scheme, employees' income withholding tax rate may increase, depending on their base monthly salary.
An employee’s income tax rate is based on their monthly salary and can easily be calculated using a deduction calculator. One can be found here.
In Portugal, there are 5 main options that you can choose from to set up and run payroll in the country:
Remote payroll is one of the easier options. You still need to establish an internal subsidiary. A larger parent company can choose to run payroll in Portugal for the parent company. However, your Portuguese business will still need to comply with local laws.
Internal payroll is a good option for businesses who want to build out a strong presence in the country. You should have the resources to directly manage the subsidiary. However, this option is expensive, since you will need to hire and train a strong HR team.
Payroll processing companies are another option. This path has benefits, but the outsourced company only handles payroll and the parent company still accepts all liability.
PEO services handle compliance with the onboarding and hiring process, but do not shoulder as much legal liability in the case of mismanagement. This is a co-employment model, so your company will still need to open an entity in the country.
Finally, you can hire employees using a global EOR service like Via. Employer-of-record services handle all of the legal and hiring compliance and take on the legal responsibilities associated with paying and hiring compliantly in Portugal. Via owns its entities and takes on all of the HR responsibilities and global employment processes.
Both large and small companies want to hire employees in Portugal, but are unsure of how to navigate the country’s payroll and labor laws. Via makes hiring Portuguese talent and building your global team seamless. Our easy-to-use platform helps you manage the local HR processes for benefits, payroll, background checks, and more. We have a local team of lawyers and on-the ground experts that understand compliance as you expand abroad.
As your employer-or-record/entity in Portugal, Via assumes full responsibility for employment liability, so that you can focus on what matters: recruiting and managing your team.
With Via’s transparent pricing, you can pay full-time employees or contractors in Portugal with no hidden set-up fees, no foreign exchange or transaction fees, and no minimums–start with 1 employee and scale up at your own pace.